As Cornerstone services SMEs in the Hong Kong Special Administrative Region, we also eagerly await for Chief Executive Carrie Lam’s policy address on Wednesday, 11 October. Rumor has it, or better yet, if she stays true to her previous sentiments, a tax reduction to 10% for SMEs of your first HK$ 2 million dollars in profit is in store. That’s a HK$ 130,000 in savings per year or HK$ 10,833 per month from taxes if you’ve hit the HK$ 2 million mark in profit, which isn’t the case for all the players.
Critics say that the Chief Executive is throwing out very easy ear bait for SMEs. Investing in Hong Kong definitely has another advantage, further lowering of simplistic tax rates, from the previous 16.5% now to 10%. How awesome is that? Not that I don’t appreciate the initiative, but let’s take a quick walk around and “tire-kick” and see how great of an incentive this really is…
This incentive is supposedly to be put in place so that we, Hong Kong collectively, can regain some competitive advantages against Singapore and other regions (north of the wall, cough cough) in the startup and SME space. If the tax rate drops to 10%, the Hong Kong government is looking to lose HK$ 10 billion in annual revenue*. Which really is generous, but it doesn’t tackle the fundamental challenges that startups and SMEs face, which are:
1. Talent Acquisition
2. Office/Storefront Rental
3. Archaic Bureaucracy
Talent Acquisition
Finding, acquiring and retention of talent is probably one of the largest challenges in Hong Kong for SMEs. First off, finding suitable talent for startups and SMEs where success rate is already extremely low, hinges heavily on finding the right talent. Besides wearing multiple hats, success relies upon how well one can excel in their core job function. In the F&B and retail space (if you have a physical store front), acquiring and retaining good store talent is practically a full time job in itself. With living expenses continue to rise in Hong Kong, this just adds additional pressure to business owners. How far does HK$ 10,833 cover for you?
Office/Storefront Rental
Depending on your storefront size, HK$ 10,833 definitely helps a bit, actually any bit will help. How many less shirts, jewelry, coffee, drinks, products will you need to sell? Don’t you feel like everyone is taking a small fee out of your hard earned revenue? Unfortunately, rental space isn’t just a small fee in Hong Kong, but a large chunk of expense for every SME. How does Shenzhen or Singapore tackle this problem? Oh wait, they don’t need to because rental space isn’t as crazy as it is in Hong Kong. I’ll probably take the HK$ 10,833 for this, but again, really doesn’t fix the underlying problem does it?
Archaic Bureaucracy
By labeling this, I bet all of you are thinking of bank related regulations, guess what? I’m not. I’m thinking of all the other unfortunate regulations and or bureaucratic necessities that plague Hong Kong, where forms and paper dominate the minds and time of processing minions. I’m quite passionate about this space as you can tell. Can’t wait for blockchain technology to really revamp, overhaul and destroy this sector… for good.
But in all seriousness, how much time do startups and SMEs waste from over-engineered and outdated form filling/document collating that range from bank KYC requirements to any type of public governance or an application of some sort of SME government funding? Again, I may accept the HK$ 10,833 for this one, because depending on your type of business, hopefully you’ll only encounter it a few times a year, because the other times, you just forgo it altogether.
I suppose one should probably not just rant on these issues, but provide potential solutions. So, after a beer and a shot of maotai (don’t tell Adrian), here’s a few that the HK government can look into:
1. Draw international talent and incentivize them, not for large corporates who can afford it, but specifically for startups and SMEs. Hong Kong does such an amazing job for domestic workers, why can’t we do it for recent graduates? Most likely because it’s too expensive. Fortunately there is more and more discussion about co-living and co-working. Incentivize those companies with your HK$ 1 billion for the specific task of recruiting talent back to Hong Kong and performing triage on the “talent bleed”**
2. If I knew how to lower commercial rental fees, I’d be running for office. So, the following suggestion is a shot in the dark. If the government can provide affordable residential projects, then should they also create affordable work-space projects***?
3. Smart cities initiatives are sprouting throughout the world. Hong Kong was the innovative leader with the introduction of the Octopus card back in the 90s. When did we start looking backwards and rely so heavily on paper when many other top cities are looking towards a paperless work environment? Once leadership focuses, drives and executes on innovation and technology initiatives, it’ll be surprising to see how quickly that permeates amongst its citizens.
Well, I’m excited!! Let’s see what comes out next Wednesday.
– Kenny
*http://www.scmp.com/news/hong-kong/economy/article/2114165/small-businesses-and-start-ups-hong-kong-need-more-tax-breaks
**http://www.scmp.com/news/hong-kong/economy/article/2110941/hong-kong-it-chiefs-having-trouble-finding-talent-poll-shows
***http://www.scmp.com/news/hong-kong/economy/article/2105108/hong-kong-chief-carrie-lam-promises-help-buy-home-prices-keep
